India open to encouraging SMR-led nuclear energy push to power AI data centre boom

Queries sent to the IT Ministry did not elicit a response until publication.

Key expenditure head

Power consumption and related infrastructure costs are a key part of a data centres’ capital and operational expenditure. According to CareEdge Ratings, 40 per cent of capex of such facilities goes towards electrical systems and 65 per cent of operating cost is on account of electricity consumption. It takes between Rs 60-70 crore to set up one MW of data centre capacity in India.

India’s data centre market is currently estimated to be worth $10 billion, with around $1.2 billion revenue generated in FY24, according to a recent report by Anarock. As per real estate firm JLL, India is expected to add 795 MW of new capacity by 2027, taking the total capacity to 1.8 GW.

The consideration comes at a time when there’s renewed debate within sections of the government if data centres are an area where India should offer policy incentives, especially given how energy-intensive this sector is and the high capital-low employment intensiveness of this industry.

While renewables have been the first choice for companies, there are hurdles that green power poses. Nuclear offers a solution, especially since the grid needs new electricity sources to support AI applications and nuclear solutions offer a clean, round-the-clock power source that can tide over the limitations of renewables — not generating power when the sun’s not shining or the wind is not blowing, and absence of adequate storage options to bridge the shortfalls.

What are SMRs

SMRs — small reactors with a capacity of 30MWe to 300 MWe per unit — are increasingly seen as important for nuclear energy to remain a commercially competitive option in the future, especially in the wake of surging power demand from technology companies given the massive incremental electricity requirement coming in from AI machine learning applications and data centres.

As of now, two SMR projects have reached the operational stage globally. One is an SMR named Akademik Lomonosov floating power unit in Russia that has two-modules of 35 MWe (megawatt electric), which started commercial operations in May 2020. The other is a demonstration SMR project called HTR-PM in China that was grid-connected in December 2021 and is reported to have started commercial operations in December 2023.

Value chain ambitions

India, too, is working to get into the manufacturing value chain of small reactors, both as a way of fulfilling its commitment to clean energy transition, and bundling SMRs as a technology-led foreign policy pitch.

The first is an easing of the provisions in India’s nuclear liability law called the Civil Liability for Nuclear Damage Act, 2010, which sought to create a mechanism for compensating victims from damages caused by a nuclear accident, and allocating liability and specifying procedures for compensation, but has subsequently been cited as an impediment by foreign equipment vendors such as US-based Westinghouse Electric and French nuclear company Framatome.

This is on the grounds that this legislation channellises operators’ liability to suppliers through a provision called the right of recourse of the operator.

The second major amendment in the works is aimed at enabling private companies to enter nuclear power plant operations in India, could also set the stage for foreign companies to potentially take a minority equity exposure in upcoming nuclear power projects.

Hitherto, atomic energy has been one of India’s most closed sectors. The set of legal amendments are being seen as a reform push that could help leverage the commercial potential of the Indo-US civil nuclear deal, nearly two decades after it was inked. New Delhi is also keen to package this as part of a broader trade and investment outreach with Washington DC, which could eventually culminate with a trade pact that is currently under negotiation.

The Indian government has committed to getting both these legislations passed, including an explicit assurance to this effect made in the union budget presented earlier this year, even though the legislative route for at least one of the two proposed bills would be an arduous one.